Monday, July 13, 2009

The All Star Break, Summer Vacation, Back to Blogging, and S. American Starbucks

Tomorrow is Major League Baseball’s All Star game. It marks a little over halfway through the season, but also a little over half way through my summer vacation from teaching. You would think with no teaching responsibilities I would have more time to blog, but I have been traveling, moving and researching.

So I’m going to try to get back on the blogging horse. For the first three weeks of June I was in Chile and Argentina. So over the next week I’ll see if I can remember my trip well enough to blog about it.

So to start, both Santiago (Café Haitti) and Buenos Aires (Café Havanna) had cafes that were chains that had several location, just like Starbucks some within a couple of blocks of each other. There is an economic theory behind this, called the ice cream stand at the beach problem. Imagine a long beach with lots of people (evenly distributed) who want ice cream. These people don’t want to leave the beach and they are lazy so they go to the closest ice cream stand. So where is the best place for Chris to put a ice cream stand if he wants to sell as much as possible, in the middle of the beach of course. What about if Pats wants to put in a stand after Chris opens his in the middle of the beach. The answer is right beside Chris so Pat gets ½ of the customers on the other side of the beach.

Now suppose that Chris wants pays to open a second cart, he won’t put it on the end of the beach. He’ll probably put it close to Pats cart. Maybe not next to it (Although theory might say he would), but probably not that far down the beach. Where it will be depends on the assumptions of how far people are willing to travel for ice cream.

This theory also explains why you sometimes see two gas stations owned by the same company on opposite sides of the street.

Another interesting results is if a chain establishes enough stores it may make it difficult for independent places to move in. This would be the case if opening more ice cream stands or cafes lowered your per store cost. If this is the case we might see particular cafes try to expand to gain market share.

Tomorrow, coffee with soda water, cookies, and legs.

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1 comment:

k said...

Wow, I just read this problem a couple of days ago as a management consulting practice problem! And, bam, here it is again. [Hi Seth! It's Kathleen from beloit]